Sustainable finance: mobilizing capital to achieve climate goals

In 2014 Enel kicked off a new course under the banner of sustainability and innovation. Since that time, Enel has rolled out a brand new strategy, switching from conventional energy generation to renewables, effectively reinforcing the digitalization of our fleet and our networks.

The mission of Enel’s finance department has always been to serve the business of the company. In 2017 we were confident enough, both in front of our stakeholders and the market, to reflect our new sustainable footprint in our fixed-income transactions. In other words, we were finally ready to step into the sustainable finance market and to issue our first green bond.

We issued our first green transaction in January 2017, followed by other two green bonds between 2018 and 2019, totaling €3.5 billion issuance.

After the third green bond, we reflected on the role of sustainable finance and how, according to us, sustainable finance should be considered as an accelerator of capital towards sustainable investments, thus serving our sustainable strategy that targets four core sustainable development goals (SDGs): 7, affordable and clean energy; 9, industry, innovation and infrastructure, 11, sustainable cities and communities; 13, climate action.

Also taking inspiration from the sustainability-linked loan market, we realized that an equivalent product was missing in the fixed-income space – a product that should:

After defining the core pillars of these potential transactions, meeting face to face with investors, in 2019, was crucial to set the characteristics of a potential issuance of this kind. We engaged with investors at three roadshows across US and Europe.

Ahead of the 2019 UN General Assembly we issued the very first general purpose $1.5 billion five-year sustainability-linked bond with a 25 bps step up mechanism linked to our ability to achieve our SDG 7 target of 55% renewable capacity by 2021, marking the beginning of the sustainability-linked bond market.

In October the same year, we launched the first euro-denominated sustainability-linked bond, a $2.5 billion triple tranche transaction, from which two tranches were linked to the same renewables KPI set in the context of the first sustainability-linked bond, while the third one was linked to our Scope 1 greenhouse gas emissions reduction by 2030, a science based certified goal.

The response from investors in both cases was impressive, with more than $13 billion equivalent demand and an average pricing discount of around 15 bps, compared to conventional transactions.

Mobilizing public and private capital to serve Enel’s sustainable strategy is of crucial importance for achieving the SDGs, and for achieving the ambitious investment objectives set by the strategic plan that it disclosed in November 2020.

Developing sustainable finance for Enel means pursuing a decrease in the cost of debt through transactions that link the group’s strategy to financial expenses. This is why during 2020, Enel extended the sustainability-linked approach to all its debt instruments by publishing the Sustainability-Linked Financing Framework, an all-encompassing document that governs the link between sustainability and loans, credit lines, commercial papers, and bond issues.

Two Key Performance Indicators (KPIs) were selected for the framework: reduction of Scope 1 direct greenhouse gas emissions and increase in generation from renewable sources in accordance with SDG 13 and 7. The associated targets are reviewed on an annual basis, in line with the group’s strategic plan. In this respect, in October 2020, Enel announced a revision of its group’s Scope 1 direct greenhouse gas emissions amount for 2030, with a reduction by 80% compared with the 2017 baseline. The target is certified by the Science Based Targets initiative (SBTi) as consistent with limiting global warming to 1.5C above pre-industrial levels

In 2020, 33% of Enel’s gross debt was sustainable. This figure is expected to reach almost 50% by 2023 and over 70% by 2030 through refinancing and the issuance of new sustainable finance instruments.

The sustainability-linked financial strategy was welcomed by the market and three main results certify its success:

Enel was also rewarded by the International Financing Review (IFR), the world’s leading provider of intelligence on the global capital market, as “Sustainable Issuer of the Year”, as part of the 2020 IFR Awards.

The award, which Enel won for the second consecutive year, recognized the group’s commitment to a sustainable strategy that has translated into innovation in the finance market through a new range of financing instruments connected to the corporate sustainability-linked approach.